Federal Reserve Hikes Interest Rates Again, Despite Bank Failures

WASHINGTON ― The Federal Reserve on Wednesday continued to ramp up its efforts to slow the economy, despite recent bank failures caused partly by rising interest rates.

The central bank announced it is raising interest rates by another quarter of a percentage point, the ninth rate hike since the Fed telling regulators to go easy on regional financial institutions.

The Federal Reserve, the U.S. Treasury Department and the Federal Deposit Insurance Corporation swooped in to guarantee deposits at SVB and to make loans available to other regional banks with antsy depositors. Some Republican lawmakers decried the moves as a “bailout,” but officials insisted they had to make depositors whole in order to prevent a broader financial crisis.

Powell blamed Silicon Valley Bank’s failure on a run by panicky depositors, but he suggested the Fed deserved some blame as well.

“Clearly we do need to strengthen supervision and regulation,” Powell said.

He added that while there were factors that made Silicon Valley Bank “an outlier” in terms of risk, the speed with which depositors attempted to withdraw their money showed potential systemic changes need to be looked at too.

“It’s very different from what we’ve seen in the past, and it does kind of suggest that there’s a need for possible regulatory and supervisory changes, just because supervision and regulation need to keep up with what’s happening in the world,” he said.

On Capitol Hill, the Fed’s move drew criticism from lawmakers in both parties. Rep. Brendan Boyle (D-Penn.), the top Democrat on the House Budget Committee said, “Raising rates too high and too fast — especially in this moment — could jeopardize the record recovery Americans have enjoyed under President Biden.”

“Higher interest rates mean more Americans unable to buy a home, small businesses can’t get a line of credit, and families buried in credit card debt they’ve taken on just to get through these last two years,” said Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee.